New laws, new taxes next week

Friday, Dec. 28, 2007

Tax hikes passed by the General Assembly last month to close a large deficit take effect next week, meaning the cost of cigarettes, vehicles and other merchandise will go up.

Lawmakers revamped the personal income tax code so higher earners pay more, jacked up the corporate income tax from 7 percent to 8.25 percent, doubled the tax on cigarettes to $2 a pack and boosted the vehicle titling tax by 20 percent to 6 cents per dollar.

Those measures become law on Tuesday, and the general sales tax goes from 5 cents on the dollar to 6 cents starting Thursday.

They take effect six months before the end of fiscal 2008, providing the Maryland treasury with several hundred million dollars to bank for fiscal 2009.

That means penny pinchers ought to load up on tobacco products, close on a new car and get a head start on next year’s holiday shopping to avoid the hit.

Budget analysts expect the actions to generate about $900 million, mostly from the sales tax. Lawmakers directed Gov. Martin O’Malley (D) to cut an additional $550 million in the fiscal 2009 budget that he will submit next month. They also authorized a ballot initiative to let voters decide in November 2008 whether to put 15,000 slot machines at five sites across Maryland. That would raise $650 million a year for the state when fully implemented.

The controversial expansion of the sales tax to computer services is scheduled to take effect July 1, but there will be an effort to repeal it in the 90-day session that begins January 9.

Another measure that will become law July 1 closes the controlling interest ‘‘loophole,” a provision that prevents companies from evading transfer and recordation taxes when they make transactions with out-of-state entities.

Republican legislative leaders and a Carroll County businessman have filed suit to invalidate all legislation passed during the special session on the grounds that the Senate recessed for too long without proper consent from the House. A preliminary court hearing last week was pushed back to January 4.

Despite all the new taxes, most Maryland households will pay only slightly more in state taxes next year, according to a report from the General Assembly’s nonpartisan policy analysts.

A family earning $40,000 a year could pay $7 more: $111 less in state and local income taxes, but $91 more from the sales tax and $27 more under the titling tax. A family earning $75,000 a year could pay $45 more, those earning $150,000 could see a net increase of $196 and an annual income of $750,000 could amount to $3,613 more in taxes.

To mitigate the effect on low wage earners, lawmakers increased personal exemptions from $2,400 to $3,200. The exemption decreases on a sliding scale as income rises.

The tax burden varies based on a family’s purchases, the number of exemptions claimed and county of residence, the analysis said.

Before lawmakers amended O’Malley’s deficit elimination plan, which included a state property tax reduction, the governor said 80 percent of Marylanders would see only a slight increase in taxes or none at all. O’Malley lowered that estimate to about 40 percent based on the General Assembly’s final product.

Staff Writer Sean R. Sedam contributed to this report.